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Extreme Takeover

By Chris Suellentrop February 1, 2008 4:50 pmFebruary 1, 2008 4:50 pm

Do you Micro-hoo? Technology bloggers are chattering about Microsoft’s proposed purchase of Yahoo! Henry Blodget (yes, that Henry Blodget), writing at Silicon Alley Insider, calls it “a brilliant move by Microsoft — a big premium dangled in front of battered Yahoo shareholders, but a price that would have seemed absurdly low as recently as six months ago.”

“[W]hat makes Yahoo/Microsoft interesting is the e-mail audience,” writes former Microsoft employee Robert Scoble (and current Microsoft shareholder) at his personal blog, Scobleizer. “That’s another 300 million people to add to Hotmail’s audience of close to the same.” He continues:

Yahoo has a ton of interesting Web properties that are far more interesting than anything Microsoft has done lately. Groups. Finance. Upcoming. Etc.

This gets Microsoft back into the Web game in a big way and puts a defense around Microsoft’s Office cash-generating-machine. I bet that some of Yahoo’s smartest engineers get moved over to the Office team to help build an online Office that’ll keep Google’s docs and spreadsheets from getting major marketshare inroads.

It’s the fear that Google’s Docs and Spreadsheets might someday take marketshare away from Office that I think was driving this deal.

Jeff Jarvis, the media consultant and journalism professor, is skeptical. He writes at BuzzMachine, his personal blog: “Will this be big enough to beat Google? No, because big won’t win in the end. Open will.”

And Salon co-founder Scott Rosenberg, thinks the proposed takeover “is a path to failure for both companies.” Rosenberg writes at Wordyard, his personal blog, “These big takeovers — AOL/Time Warner was the biggest­ — are always about failure in the present and fear of the future. And they nearly always end badly.” He continues:

To understand what the takeover would mean for Yahoo, just look at the fate of the previous company to end up in this circumstance. When Netscape, then a dominant portal site and purveyor of a declining but still widely used Web browser, got bought by AOL a decade ago, we heard all the usual pieties about the strength of the brand and the value of its franchise. But AOL’s acquisition of Netscape meant its doom: the remaining talent headed for the exits, and its assets were quickly cannibalized. AOL itself entered another disastrous merger a couple of years later, and today it is a shadow of its former importance ­ while Netscape isn’t even a phantom.

Similarly, if Microsoft wins Yahoo, you will see most of Yahoo’s smart people depart, and its customers gradually parceled out to attempt to bolster Microsoft’s ever-faltering efforts to build an online business. Much of the talk in the business press surrounding this deal will be about Yahoo’s ad business, and it’s true that Microsoft will find it useful, but it’s hard to see what new power a combined Microsoft and Yahoo business will have to challenge Google that the two companies didn’t have as separate entities.

For Microsoft, this move is a final admission of the utter failure of the company’s effort to build an online business for itself over the past decade ­ in services, advertising or content.

(Disclosure: I was employed by Microsoft from 2000 to 2005 as a Slate writer and editor, and remain a Microsoft shareholder.)

Why would Yahoo employees depart? It’s not like Yahoo is some small startup. This is a genius move by Microsoft and they will get Yahoo in the end. There is so many duplicate costs that can be eliminated.

The takeover is a horrible idea. Yahoo! technology is based on UNIX (FreeBSD), and they’re proud of it. Converting them to Microsoft software, which is very unreliable compared to UNIX, would wreck their technology and demoralize their employees. The cultures of the two companies are also a very bad fit. And Microsoft doesn’t really have much to gain by getting Yahoo’s ad business. Due to its browser monopoly, Microsoft already has the most visited home page on the Net. Steve Ballmer probably thinks he can find a way to pull a “Netscape” on Google. (Microsoft acquired Internet Explorer from a third party company for the same reason when it went after Netscape.) But Google sells services, not a product, so Ballmer can’t go after Google unless he gives away Google’s product — ads — for free. And that’s a blatant anticompetitive move that he won’t get away with. No wonder Microsoft shareholders are punishing the company for making the offer.

Usually people leave because it is cultural. I’m one of the many Netscape employees who left shortly after the AOL acquisition, and the problem was that the AOL culture was completely different from the Netscape culture. I’ve personally described it as an East Coast vs West Coast style; a West Coast style delegates more efficiently and that results in greater creativity. East Coast style is more authoritarian (we were told that to requisition office supplies required the approval of a VP in Virginia!) The East Coast style may result in better controls of cost, whereas the West Coast style results in better opportunities for growth, in my opinion.

Another factor for the earlier departures is much more relevant to Microsoft/Yahoo, at least at the engineering level. Simply put, Microsoft is not “cool.” (Neither was AOL.) Yahoo, as I understand, is built heavily on open source platforms and technologies. BSD and Linux, two open source operating systems, rule there. Microsoft is known for wanting to kill open standards, use proprietary protocols, and control. I’d suspect the mindset of many engineers there is not one that would want to stay.

I don’t work at Yahoo, although some friends do, so I can’t speak with any certainty, but that’s based on those friends and how they approach work.

One factor that may keep people at Yahoo… The economy for technology jobs in Silicon Valley is not as good as it was in 1999.

If capitalism means allowing outstanding companies like Yahoo! to be TAKEN OVER AND DESTROYED by third-rate failures that survive financially by monopolist control, like Microsoft . . .

then what good is capitalism?

This is more evidence that survival of the fittest means survival of the WORST all too often, and that to call any system “Darwinian” is to call it a failure.

Have we reached the point where NO ONE has the power to stop corporations from endlessly destroying every asset we have?

Microsoft’s exploitation of its monopoly (inherited from IBM) is not merely criminal. The monopoly in operating systems has allowed a third-rate AND predatory corporation to survive when it otherwise would not have.

When corporations become big enough to intimidate governments (Microsoft threatened to defund the anti-trust division of the Justice Department), then it’s time to make fighting monopolies a top priority.